GST- What We Can Expect For The Auto Industry From 1st July 2017

Published on:
30 Jun, 2017,
Author – IndianBlueBook

The Goods and Services Tax (GST) will be rolled out from the 1st of July, 2017 and will have a major impact on the automobile industry in India. The first thing to know is that GST will have four rates, namely 5%, 12%, 18% and 28%. Cars have been kept in the highest tax bracket, i.e. 28% and there will be a cess over and above this rate. However, the prices at which cars will be available largely depends on the division of cars into the small, large, electric and hybrid vehicle categories.

Cars which are less than 4 metres in terms of length and come with petrol engines with the capacity lower than 1200 cc will come with a cess of 1%. This will take the total taxation to 29% which is less than the previous 31.5% and this means that these cars will cost 2.5% less in comparison to the present on-road prices. These cars will include the likes of the Renault Kwid and Maruti Suzuki Alto 800 among others.

If the same cars come with diesel engines with capacities lower than 1500 cc, they will have a cess of 3%, making the tax rate 31%. This is anyway lower than the present 33.25% and this means that the diesel versions of cars in the compact hatchback, premium hatchback, compact sedan and compact SUV segments will be cheaper. This will include the likes of the Diesel Maruti Suzuki Swift, diesel Volkswagen Ameo and many others.

For cars measuring less than 4 metres and which use 1200 cc or 1500 cc diesel engines, they will attract taxes of 15% which means total taxes of 43% which is lower than the earlier 44.7%. This category includes cars like the Ford EcoSport for instance. The cars which are longer than 4 metres and have engine capacities exceeding 1200 cc in case of petrol and 1500cc in the case of diesel will have the same 15% cess and this takes their total tax to 43%. As a result, this will be 8.6% lower than the present 51.6%. Cars like the Volkswagen Vento and Honda City fall in this category along with many others.

Hybrid vehicles have also been kept in the highest tax bracket with a 15% cess and the total tax of 43%. This is more than the present 30.3% rate and will affect cars like the Lexus RX450h and the Maruti Suzuki Ciaz SHVS among others. Electric vehicles, however, fall in the 12% tax slab and will not have any cess and this will make them 7.5% more affordable in terms of tax rates. GST will also benefit buyers of luxury cars. The catch here is that there is no definite segmentation for luxury cars.

They will be segmented as per the above divisions which mean that price reductions will be way higher since the deduction of either 2.25% or 8.6% will amount to a lot more money on account of the higher price tags of these cars. Luxury car buyers will only have to be mindful of the segment under which their car falls. The Mini Cooper 3 door, for example, has less than 4 metres in terms of length and a diesel engine which has a capacity lower than 1500cc. This means that there will be a price reduction of 2.25% on the present ex-showroom (Delhi) price of Rs.28.5 lakhs. The Mercedes-Benz A-Class 180 which is priced at Rs. 27.58 lakhs (ex-showroom, Delhi) at present, is longer than 4 metres and has an engine larger than 1500cc. As a result, it will get a deduction of 8.6% on the price, making it more affordable than the Mini Cooper after the implementation of GST.

However, most luxury cars have engine capacities exceeding 1200 cc and 1500 cc in the case of petrol and diesel respectively and also measure more than 4 metres in length. This means that the average deduction you can expect in taxes is 8.6%. Luxury SUVs currently come with a tax rate of 55% and after GST, they will come with a 43% tax rate, which makes then a whopping 12% cheaper. This will lead to major price reductions on luxury SUVs like the BMW X5 and the Mercedes-Benz GLE among others.

However, it remains to be seen how much of the reduced prices will be passed onto the customers by automobile companies since they also have to take the impact of service tax increases which also scales up overall input costs during a car’s production. The Toyota Fortuner, for example, will have 12% lesser taxes than before but Toyota is expected to reduce prices just by 7%. Overall, cars will be cheaper for customers but the exact quantum will be known only after the 1st of July, 2017.